Argentina: "We Choose Default And Massive Poverty!"??

The first thing the new Peronist government did was declare immediate default on all foreign-held Argentinian government bonds. The inflammatory rhetoric surrounding this declaration was deliberately calculated to convince by emotional reasoning. Whether the new government has any idea what their citizens have chosen to be condemned to, is dubious. It should be noted that since over half of Argentina's debt is denominated in U.S.$, that explicit devaluation is disastrous. This also puts serious intrinsic downward pressure on their currency. The only theoretically viable options are thus currency peg, or dollarization. Both have definite disadvantages.

The Prelude and Aftermath of Argentina's Democratic Choice to Default

• Argentina is continuing to hold the line on its 25 cents on the dollar debt restructuring proposal.

• Argentina's government replaced its central bank chief Alfonso Prat-Gay Friday with Deputy Foreign Minister Martin Redrado. No immediate policy changes are expected, although behind-the-scenes disagreements in policy between Kirchner and Prat-Gay are suspected.

• An IMF internal report said the IMF supported an unsustainable currency peg throughout the 1990's, and did not cut off support after it was clear the then-current regime lacked fiscal discipline. The report recommended constructing stop-loss contingency plans, and taking political obstacles more seriously.

• Argentina has floated a revised debt restructuring proposal: 25 cents for every dollar owed, plus interest accrued since default in Dec. 2001. [Formerly, 25 cents for every dollar owed, no interest.] Evidently, the Global Committee of Argentina Bondholders (based in New York, representing investors holding U.S.$37 billion in Argentine government bonds) does not believe this unacceptable offer is as final as claimed by Argentina's Economy minister Roberto Lavagna.

• Argentina announced that it would make a U.S.$3.15 billion payment to the IMF due today. This was the price of keeping a U.S.$13.3 billion loan deal alive at its review on March 23, 2004, in the face of questions of whether Argentina is negotiating in good faith with its creditors holding defaulted Argentinian government bonds (current spread being 25% face value [Argentina, rejected by IMF] vs. 65% face value [creditors]).

• Argentina followed up on a 2002 GDP decline of 10.9% with a 2003 GDP increase of 8.4%. However, over 50% of the population is still below the poverty line.

• The IMF has completed its first review of Argentina's economic reforms under a three-year long program. This cleared the way for Argentina to receive an additional U.S.$358 million in funds.

• In response to anti-IMF rhetoric from Argentina's President Nestor Kirchner (about when the IMF must decide whether to approve its first review of a U.S.$12.6 billion loan program), the IMF sent a mission on a surprise visit to express concerns about whether Argentina is negotiating its U.S.$88 billion defaulted debt in good faith. It also appears that previously agreed targets on bank sector reforms, and utility tariffs, are not being implemented on schedule.

• Argentina wants to restructure its debt to private creditors by slashing the face value by 75%. So far, the main response has been to foreclose on Argentinian government property. I would be more confident about European efforts on property located in Europe, than Japanese efforts targeting properties in Patagonia. A judge in New York granted a 45-day period for Argentina to complete its restructuring before Argentinian assets in the U.S. were subject to seizure.

• Having obtained the refinancing deal, Argentina went ahead and made the U.S.$2.9 billion payment to the IMF out of foreign reserves.

• Argentina gained key concessions in its deal with the IMF: no deadlines either for compensating banks for devaluing the Argentinian peso, or for raising public utility prices. However, the mere existence of the deal is provoking mass protests.

• Argentina has decided not to tap U.S.$13.5 billion in foreign reserves to make a U.S.$2.9 billion payment due to the IMF. This puts Argentina in default to the IMF as it tries to negotiate a rollover of U.S.$12.5 billion owed to the IMF over the next three years (through 2006). It is expected that the IMF needs the deal more than Argentina, in that it has (historically; Jan. 2003) backed down on reform demands for Argentina rather than tolerate a default for a noticeable period of time.

• Carlos Menem, in spite of winning the first round of votes in April, has dropped out of the runoff presidential election. This means Nestor Kirchner (former governor of the Patagonian province of Santa Cruz) wins by default. It is unclear what prompted this. Kirchner is expected to maintain many of the policies set by the current president, Eduardo Duhalde.

• Argentina's Supreme Court ordered the state-owned Banco de la Nacion to restore the original dollar value of a U.S.$247 million deposit held by the provincial government of San Luis. It is unclear how much this precedent can be applied to more typical accounts.

• Argentina's peso has stabilized at about 30% of its value before floating. This has made Argentinian textiles, auto parts, and paper competitive with imports. Foreign investment is also starting to occur more often.

• Argentina has successfully made a U.S.$1 billion debt payment to the IMF, avoiding a default. This coincides with the signing of a new letter of intent with the IMF for refinancing U.S.$6.6 billion in IMF loans. In contrast, Argentina did default on a U.S.$681 million debt payment to the Inter-American Development Bank earlier this week.

• Argentina's Central Bank head, Aldo Pignanelli, has resigned. This appears to be due to key policy conflicts with the finance minister. In particular, Aldo wanted to tap central bank reserves to make the full World Bank payment on Nov. 14, 2002...a repeat of this default apparently will cut off IMF funding as well as World Bank funding. The final incident was when the central bank was coerced into preventing the collapse of a state-controlled bank from account withdrawals.

• The previously announced 'unfreeze' also affected current accounts, as well as savings accounts. Some formally less-liquid accounts are still affected.

• Argentina's Economy Minister Roberto Lavagna announced plans to lift a freeze on savings accounts on December 2, 2002. Price increases for electricity and gas are also proposed, although these are definitely less than IMF requirements.

• In order to prevent central bank reserves from falling below U.S.$9 billion, Argentina defaulted on an approximately U.S.$805 million prinicipal payment to the World Bank. Interest of approximately U.S.$77 million was be paid. A planned repeat, on December 14, 2002, is expected to freeze further funds from the World Bank.

• Spain's Telefonica phone company branch, in Argentina, reported that 125,000 miles of its copper wires (500 tonnes) has been stolen so far this year. While this has been a long-standing problem, it has been dramatically worsened this year. Buenos Aires, Mendoza, and Patagonia are noted as being especially affected. Furthermore, some of this copper is being exported: U.S.$195 million worth of copper was exported from January 2002 to June 2002 inclusive. Argentina has never exported copper (significantly) before.

• Argentina's President Eduardo Duhalde said that improving the "productive system" was essential to obtaining cash flow for repaying foreign debt. He considers IMF refinancing for Argentinian exports to be very useful towards this end.

• The Argentinian debt swap of July was used for only 15% of its intended allowance. Economy Minister Roberto Lavagna announced a more competitive plan, which is hoped to affect up to 60% of longer-term bank savings. This time, each saver will be allowed access to 7,000 pesos (some cases get slightly more), which may be taken either as cash or dollar-denominated Argentinian government debt with a guaranteed highly favorable exchange rate.

• The IMF granted the extension Argentina had requested. The IMF managing director, Horst Koehler, confirmed Atanasof's comments about lack of political consensus: the submitted Argentinian plan was weeks late, and not sufficiently aggressive to actually do anything about Argentina's difficulties.

• Argentina sought a one-year waiver on U.S.$2.78 billion in interest payments, owed to the IMF, due Sept. 9, 2002. Alfredo Atanasof (Duhalde's Chief of Staff) said that the lack of political consensus had to be solved by the voters, as it was beyond Duhalde's adminstration. Elections are currently scheduled for March 2003.

• IMF spokesman Tom Dawson said that while Argentina's situation has been stabilized, there are still widespread problems. Also, the lack of an Argentinian political consensus makes it difficult to identify any plan of action.

• Argentina's Supreme Court has sabotaged negotiations with the IMF by ordering the government to undo a 13% cut in salary imposed by Domingo Cavallo (and not reversed before now). Unfortunately, it is unclear what means, other than hyperinflation, the government can use to obtain the funds to implement the ruling.

• From July 14 to August 6, 2002, about U.S.$60 million more was deposited in banks than was withdrawn. About one third of this was denominated in pesos. The rest of it was denominated in U.S.$. By comparsion, in January 2002 through June 2002, almost one third of the savings in peso accounts (more than U.S.$6 billion) was withdrawn.

• Alfredo Atanasof, head of Argentina's cabinet, announced that the government had ordered a 120-day suspension of appeals which force banks to return withheld deposits. Since Argentina's Supreme Court is on summer vacation, it has not officially commented yet.

• Argentina has obtained a year's extension on the repayment of a key IMF loan. This enabled Argentina to avoid defaulting on another loan from the Inter-American Development Bank.

• The French utility Suez made another provision of 500 million euros to cover economic risks in Argentina. This is expected to reduce its risk from Argentinian activities to zero. Analysts at Aurel Leven estimate that this will reduce Suez' profit by 17%, to an estimated 1.45 billion euros from an estimated 1.70 billion euros. Suez is also resorting to a procedures from a bilateral treaty between Argentina and France to negotiate corrective or restorative measures for damages caused by Argentina's actions. Failure of these negotiations could result in a drastic scaling down of future activities by Suez in Argentina.

• Argentina's Central Bank promoted Aldo Pignanelli from vice president to president, in the wake of Mario Blejer's resignation.

• The European Bank of Latin America (BEAL) has decided to totally refund all Argentinian deposits in its accounts and shut down Argentine operations. This uses up U.S.$31.6 million of its U.S.$32.7 million reserves. Losses to this point since devaluation are on the order of U.S.$100 million.

• Argentina's Central Bank President Mario Blejer plans to resign by June 30th, 2002. This appears to be due to policy conflicts with Argentina's Economy Minister Roberto Lavagna, and/or the refusal of Argentina's Congress to grant immunity to (frivolous?) lawsuits opposing the corrective measures required.

• Argentina's Finance Secretary Guillermo Nielsen announced that banks may, at their discretion, unfreeze savings accounts deposits as cash as an additional option to the priorly announced government bond plan. Unfortunately, it is unclear what the legal exchange rates for this purpose will be.

• Argentina's President Eduardo Duhalde was surprised by the IMF's decision to consider the economic subversion law condition unsatisfied -- after Argentina's Congress had started deliberations to precisely clone it in new legislation. Duhalde hopes fairly minor tweaks will enable the new legislation to avoid the unwanted effects of the old legislation.

• The IMF announced that it would resume negotiations with Argentina regarding future loans. The main conditions on this were:
  • creditor protecting changes to Argentina's bankruptcy law
  • foreign investor protecting changes to Argentina's economic subversion laws
  • implementation of spending cuts by Argentina's provinces

• Argentina's Economy Minister Roberto Lavagna announced a plan to convert savings accounts to government bonds. All depositors had the option of a 5-year maturity bond denominated in Argentine pesos, or a 10-year maturity bond denominated in U.S.$. The elderly (older than 75) also had the option of a 3-year maturity bond denominated in U.S.$. This plan still has to be approved by Argentina's Congress.

• Argentina's Senate voted 35-34 to repeal the 1974 law criminalizing capital flight, which the IMF had required the repeal of in exchange for even considering more aid.

• President Eduardo Duhalde signed a decree that would eventually phase out a six-month freeze on bank accounts.

• This is the last day for the Senate to consider abolishing the economic crimes bill in accordance with IMF wishes. If it is not abolished to day, the question cannot return to the agenda for a year by law.

• Both Argentina's President Eduardo Duhalde, and the Central bank chief Mario Blejer, have threatened to resign because of congressional refusal to make sufficient progress towards implement IMF-demanded reforms. In particular, the IMF requires the undoing of an economic subversion law originally intended to cut off funding to guerilla groups, because it is being used to sue banks on very vague charges.

• Argentina's Banking Association (a trade union for banking workers) has announced a general strike for May 23, 2002 (Thursday) in response to the situation at the Credit Agricole-controlled banks.

• Three banks controlled by France's Credit Agricole -- Banco Bisel, Banco Suquia SA, and Banco de Entre Rios (BERSA) -- have had their operations taken over by state-run Banco de la Nacion Argentina, due to Credit Agricole's refusal to supply further reserves. BERSA is expected to reopen today, while Bisel and Suquia are expected to reopen on Wednesday [May 22, 2002]. Between the three affected banks, 353 branches with about 6,000 employees are affected.
• The limits on dollar exchange are also being revised. Banks with 50 or more branches can transact U.S.$1 million per day; banks with less than 50 branches are limited to U.S.$500,000 per day, while exchange houses will be limited to U.S.$300,000 per day.
• Scotiabank Quilmes' suspension has been renewed for another 30 days.

• Argentina's Senate has approved a controversial bankruptcy law, meeting one of the IMF requirements for releasing further aid to Argentina.

• Argentina's Economy Minister Roberto Lavagna insisted that banks would maintain full operations on Monday (May 14, 2002). He flatly denied reports suggesting that the central bank had intervened to support local banks, while admitting that a government plan to free up people's savings by conversion to government bonds and foreign corporate banking "IOUs" (bonds?) had proven too costly. However, plans to liquidate frozen savings were still being worked on. The possibility of directly exchanging government property for frozen savings is being considered. [The savings freeze was instituted under President Fernando de la Rua, after U.S.$2.6 billion in deposits was withdrawn on Nov. 30, 2001. Between March 2001 and November 2001, U.S.$20 billion in deposits had been withdrawn.] Inter-American Development Bank chief Enrique Iglesias also approved a U.S.$700 million loan to Argentina for social programs. Also, one idea being considered to control inflation was setting up wholesale purchases direct to consumers.

• The percentage of Argentina's population of 36 million living at or below the poverty line was announced as reaching 50%. This is attributed to a 35.2% inflation since Dec. 2002 (government estimate; divergence between private sector and government has already prevented reliable inflation estimation from abroad). 2 million of the population fell below the poverty line in April 2002. This is concentrated in the north, where the percentage of people below the poverty line approaches 2/3rds.

• Argentina's Economy Minister Roberto Lavagna announced that Argentina would pay U.S.$800 million in World Bank debts which are due to mature next week. He expects to use central bank reserves (currently estimated at U.S.$12 billion) and other state resources to do so.

• The Argentinian peso slipped from [buy/sell rate] 2.91/2.93 pesos/U.S.$1 at close on April 30, 2002 to 3.10/3.13 pesos/U.S.$1 at open on May 2, 2002. This was attributed to the legislature's reluctance to make changes to bankruptcy laws required by the IMF before releasing further aid. While overall inflation appears to have been 20% since January 2002 and 10% for April 2002, basic foodstuffs have been subject to an inflation rate closer to 150% since January 2002 and 30%-50% for April 2002.

• Argentina's banks are set to reopen on Monday, April 29 2002. It is hoped that the deployment of riot police outside the banks will prevent gross violent protests. There are also concerns that farmers may refuse to deliver food to the cities.

• Roberto Lavagna has been named as Argentina's new Economy Minister.

• Argentina's Congress has passed a law that specifically requires court orders for yielding deposits to be appealed to Argentina's Supreme Court before they are implemented. [Keep in mind that Argentina's Supreme Court has already ruled the withdrawal restrictions to be government theft of property.]

• Jorge Remes Lenicov has resigned from his position as Argentina's Economy Minister, since Argentina's Congress has outright refused to consider his plan to replicate 1981: convert 60% of bank deposits to government bonds. Some banks were open today for retirees to collect benefits; however, all other banking and stock market functions were shut down.

• The Canadian owners of Scotiabank Quilmes responded to the Argentine government's [Central Bank?] suspension of Scotiabank Quilmes (after a bank run) by requiring that Argentina change its banking rules before any reserves would be provided from overseas. Later today, Argentina announced a bank holiday to last through all of next week [at least April 26, 2002]. It appears that about 10% of the deposits in the Argentine banking system has been withdrawn since January 2002...which is comparable to the probable reserve ratios of said banking system in January 2002.

• Mass protests by workers over not being paid started on April 17, 2002. Even government workers are not being paid. It appears that Argentina considers the IMF requirement of cutting government jobs to be sufficient to destroy the current government.

• Argentina's second-largest telecommunications firm, Telecom Argentina [jointly owned by France Telecom and Telecom Italia], has suspended payment on debt principal for U.S.$3.2 billion in debt. This is thought to be the largest corporate default in Argentina (as of this date). This follows in the footsteps of CTI Holdings [owned by U.S.-based Verizon Communications; U.S.$1 billion, announced last week of March 2002] and Metrogas [jointly owned by British Gas, and YPF of Spain; U.S.$420 million].

• The former exchange controls have proven insufficient. After ineffectually spending U.S.$1.2 billion (10%) in reserves, Argentina's Central Bank has resorted to the following additional controls:
  • The Central Bank no longer sells U.S.$ at the market rate.
  • The sale of dollars is limited to $1,000/individual and $10,000/company (over an unspecified time duration), and the legal opening hours for bureaux de change has been restricted to three and one half hours per day.

• It appears that a key target for the exchange rate is 2 pesos/U.S.$1 . [This isn't just psychology. Indonesia's import/export economy was destroyed by sudden change in exchange rates of a factor of 3.]. Argentinian inflation estimates for 2002 are ranging from 15% (government) to 35% (high bound of EcoLatina). Central bank intervention does not seem to be strengthening the exchange rate beyond 2.35 pesos/U.S.$1 . Without the Malaysian Edge (inside connections with a corporation whose dominant revenue stream is hard currency), the police investigations of massive (illegal) export of bank reserves indicate that any currency defense cannot be sustained at effective levels (less than 2 pesos/U.S.$1 ) for long.
• Argentina's President Eduardo Duhalde reported that of the 10 IMF requirements for resuming aid, Argentina had already satisfied eight. Unfortunately, two of these requirements are "impossible" to implement at this time. [Xinhua, March 16 2002: One of the impossible requirements is ceasing to use government and state bonds as currency -- currently 1/3rd of the effective Argentinian money supply....]

• It appears that the IMF is unlikely to provide assistance until Argentina both stops printing money itself, and prevents fourteen of its states from printing money. Unfortunately, Argentina's tax collections have imploded, forcing Argentina to print pesos simply to pay government workers. The exchange rate was reported at 2.5 pesos/U.S.$1 .

• Jorge Remes Lenicov announced an option to convert U.S.$30,000 of frozen deposits into 5 or 10-year Argentinian government bonds. The deadline for choosing to convert is said to be the end of March 2002 (March 31, 2002?).
• A pervasive medical supply shortage in Buenos Aires' public hospitals has prompted a shutdown of all non-emergency surgery by a group of cardiovascular surgeons. It is unclear how long this shutdown is for.
• Government controls on milk prices apparently have made it impossible for dairy farmers to make a profit on milk. Resulting protests are reported to have blocked some minor highways.

• Argentine lawmakers have approved President Eduardo Duhalde's austerity budget. This brings Argentina's actions closer to what the IMF wants.
• Police raided Argentina's central bank in further investigation of charges of money being illegally transferred abroad.

• Uruguay's Central Bank has ordered a 90-day suspension of operations of Banco Galicia Uruguay, SA (totally controlled by Argentina's Banco Galicia Buenos Aires SA) for lack of liquidity. [More precisely, unable to meet the clients' demand to close their deposits at the maturation of their contracts.]

• Argentina's Economy Minister Jorge Remes Lenicov announced that the intended reopening time for Argentina's forex markets would be next Monday (Feb. 11, 2002).

• Argentina's reported national debt has risen to about 90% of GDP, from 52% of GDP in Dec. 2001.

• Argentina's Economy Minister Jorge Remes Lenicov announced a package of emergency measures. This included:
  • Loans taken out in dollars switched to pesos at 1 peso/U.S.$1 .
  • Dollars deposited in banks switched to pesos at 1.4 pesos/U.S.$1 .
  • Full access to paychecks as soon as they hit their accounts.
  • Free-floating forex markets for the Argentinian peso.

• President Eduardo Duhalde, faced with a (surprise?) Argentine Supreme Court ruling calling the banking freeze unconstitutional government destruction of Argentinian property, declared that his government would maintain the banking freeze because it was physically impossible to dismantle it without annihilating the country. Argentina forex markets were to be shut down Monday and Tuesday (Feb. 4 and 5, 2002).

• Argentina's Senate has passed a law (yet to be approved by the house) that would illegalize all foreign bond payments. The wording of this bill would make no exemptions for multinational companies, and would illegalize the payments even if a non-Argentine branch were to make them.
• Estimates of Argentina's GDP contraction for 2002 range anywhere from 5% to 20%.

• Spain's Santander Central Hispano announced that it had written off (all of?) its Argentinian assets, giving this bank the option of completely shutting down all operations in Argentina.

• Argentinian police raided local offices of:
  • The international bank HSBC
  • Spain's BBVA and Santander
  • U.S. banks Citibank and Bank Boston
  • The U.S. airline American Airlines
  They are investigating charges that U.S.$26 billion was carried on trucks to Buenos Aires' Ezeiza airport and illegally flown out before bank accounts were frozen on Dec. 3, 2001.
• The conversion rate of U.S.$ deposits to peso deposits has been raised to U.S.$5,000 (per week?). This is at an exchange rate of 1.4 pesos/U.S.$1 . The open market rate is about 1.95 pesos/U.S.$1 .
• Argentina's central bank president Roque Maccarone has resigned, nominally over his handling of government banking regulations. He is being succeeded by his deputy, Mario Blejer.

• Spain's Banco Santander and Banco Bilbao Vizcaya, which each have about 1.5 billion euros of exposure to Argentina, are not expected to suffer a ratings downgrade.

• Argentina's Economy Minister Jorge Remes Lenicov was three hours late to a speech to delineate Argentina's current recovery plan. The peso withdrawal limit was lifted to 1,500 pesos/week, from 1000 pesos/week. However, U.S.$-denominated accounts were generally frozen for a year by conversion into fixed-term deposits. [Current accounts above $10,000, and savings accounts above $3,000, were converted.] The banking system simply was not given enough information to implement the opening of the planned dual-currency market system today.

• Argentina delayed the reopening of its currency exchange markets, missing a self-imposed deadline due to difficulties in defining the operation of the currency exchange markets. The system appears susceptible to invoicing that prices in the devaluation (contrary to Argentina's intent).

• Spanish energy company Repsol is making contigency plans for a 30% reduction in 2002 profits inflicted by a proposed 25% increase in export taxes. Repsol is also reported to have 15% of its assets in Argentina. Also, the planned direct conversion of U.S.$ utility bills into pesos at a 1:1 ratio is expected to cause problems for a number of multinational utilities, including French utility giant Suez and Spanish Endesa. Endesa is reported to have no Argentinian assets, but to have 9% of its Brazil-based sales in Argentina.

• The locked exchange rate (for import, export, and capital transactions) is officially locked at 1.4 pesos/U.S.$1 (when the currency exchange markets reopen). This is expected to immediately cause losses on the scale of billions of U.S. dollars for Spanish multinational companies, including telecommunications giant Telefonica, oil company Repsol-YPF, and the major banks Santander Central Hispano and Banco Bilbao Vizcaya Argentaria.

• The Duhalde government reported that Argentina's 2001 deficit was about U.S.$11 billion -- well in excess of the U.S.$6.5 billion target agreed with the IMF in exchange for U.S.$8 billion in emergency aid. It appears that loans up to U.S$100,000 will be converted to pesos.

• The Duhalde government announced general plans to establish a two-tier currency exchange market. The general intent is to lock the rate for international corporations, while forcing individuals to use a free-floating rate. There is also a general intent to convert some dollar-denominated debts into pesos. There has already been a rise in applications for Italian passports by Argentinians of Italian descent.

• Eduardo Duhalde has been sworn in as Argentina's president. Contrary to normal procedure, he is expected to serve the rest of de la Rua's term. There are speculations that the peso would be repegged at 1.3 pesos/U.S.$1 to 1.4 pesos/U.S.$1.

• Rodriguez Saa has followed his cabinet's lead, and resigned from the presidency. It appears that the argentino only has minority support in the Peronist political party, which presumably would rather bankrupt most of Argentina's middle class outright than sabotage public wages. It also became evident that Argentina's dollar reserves backing the peso are no longer sufficient to permit dollarization (i.e., are not there in sufficient quantities to justify the peg). Ramon Puerta resigned immediately on grounds of ill health, and Chamber of Deputies leader Eduardo Camano is not expected to hold the position past Tuesday.

• Argentina's President Rodriguez Saa's entire cabinet has offered to resign, in face of isolated violent protests at his proposal of the argentino: six police officers seriously injuried and vandalizing Argentina's Congress by setting small fires, throwing chairs and sofas out of the main entrance, and smashing windows.

• Argentinian pesos have fallen (on the black market) to about 1.4 pesos/U.S.$1 . The official forex markets remain closed by government decree (and apparently have been since Dec. 20, 2001).

• It appears that the only intended backing for the argentino is Argentinian government property (such as the presidential palace). [This facetiously reminds me of the scene from Goethe's Faust, where Mephistopheles suggests that gold can back paper money before it is mined.] The prospect of being paid in potentially hyperinflating argentinos is particularly unnerving to public workers. Unfortunately, it's too late to accept that 13% cut in peso wages. The earliest the argentino is expected to launch is in about two weeks.

• Former Argentine President Carlos Menem has criticised the plan to introduce the argentino, a parallel currency. Memem favors dollarization over devaluation; it appears that the argentino is intended to devaluate in an orderly way. In particular, the wages for the new jobs are intended to be in argentinos.

• Interim President Adolfo Rodriguez Saa has announced a plan to create one million jobs, with 100,000 jobs created in the first week. 24,000 new jobs ranging from armed forces, to forestry work and other public services, were to be announced Thursday. He is making initial plans to discuss the situation with U.S. President George Bush and Spanish Prime Minister Jose Maria Aznar.

• The countries with notable exposure to Argentina's defaulted debt are South Korea and Spain. South Korea's exposure is thought to be about U.S.$200 million. Dutch bank ING reported that most of its 750 million euro exposure is secured, while UK investment bank HSBC reported that its Argentine interests represented less than 1% of its assets.

• Adolfo Rodriguez Saa has been named interim President of Argentina, taking over the position from Ramon Puerta. He immediately announced a default on all foreign debt, with the intent to redirect the money into social and job-creation programs. He ruled out dollarization and immediately undoing the peg of the peso to the dollar, but intends to create a third currency which has no anchor.

• Fernando de la Rua has resigned, due to the refusal of the Peronists to form a coalition with his political party. At least twenty people have died in the rioting, with hundreds injured and over 2,000 arrests.

• Fitch IBCA has reduced its rating on Argentinian government bonds created by the debt swap from C to CC (or is it DDD?), indicating that default is imminent. Within the next 30 days, the following are expected: widespread bankruptcies, bank closures, the biggest sovereign debt default in history, and an uncontrolled devaluation. There is some speculation on whether Argentina will honor the traditional 35% "haircut" in its suspected-impending moratorium.

• Argentina's Economy Minister Domingo Cavallo has resigned, in response to the rioting. De la Rua has declared a state of seige, and is engaged in negotiations to prevent the necessity of his resignation.

• Hundreds of protesters looted several suburbs of Buenos Aires, injuring five police officers in the process. Photos associated with the original suggested the claim "We are hungry; we want food!" (at one rally) lacked veracity...more telling was that Cavallo's proposed budget slashes public servant wages by 13%.
• There are concerns that the current instability in Argentina may cause problems in Brazil (whose largest trading partner is Argentina) and other nations with currency pegs (including Hong Kong, Estonia and Bulgaria).

• Argentina's Economy Minister Domingo Cavallo has announced that Argentina's 2002 budget will reduce spending by almost 19%, to about U.S.$39.598 billion. [Spending for 2001 is expected to be about U.S.$48,792 billion] The planned reduction (U.S.$9 billion) is expected to be mostly from a massive debt-swap operation currently in progress.

• Argentina has paid a U.S.$700 million installment on its national debt today, avoiding default. Violent protests and looting were reported. Cavallo's deputy Daniel Marx announced that he would step down once Argentina's debt restructuring talks were completed.

• The black market is no longer honoring the peso peg: the black market exchange rate is now about 1.12 pesos/U.S$1. Cavallo is reported to be headed to Washington D.C. for weekend talks.

• Argentina's economy minister Domingo Cavallo, in an effort to locate U.S.$900 billion to stave off a debt default, has forced the deposits of various pension funds to be converted from cash to Argentinian government bonds.

• The IMF has announced that it could not complete a review of the IMF-supported program in Argentina. This completely shuts down all chance of Argentina obtaining U.S.$1.3 billion in assistance that is useful in avoiding default on U.S.$132 billion in loans. The review will be stalled until the government convinces the IMF it has the political will to follow through on spending cuts and take constructive action towards macroeconomic growth.

• Argentina's refusal to explicitly consider either dollarization, or devaluation, has provoked the IMF into seriously denying further assistance to Argentina: U.S.$1.3 billion. The head of the IMF team in Argentina, Thomas Reichmann, has been recalled to Washington -- officially normal, but the timing (right after the bank withdrawal restrictions) is suggestive...especially since the IMF was not consulted before this was implemented.

• Argentina's government (de la Rua) has imposed a limit on withdrawals from banks of U.S.$1,000 per month. This is in order to prevent a run on banks from draining Argentina of the cash necessary to make the current debt payment. The first stage of the debt swap appears to have been successful.
  • May 20, 2002 [CNN]: The net withdrawal rate per day, before this, is thought to have attained U.S.$50 million per day.

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